Index Options vs. ETF counterpart

I did not see this mentioned in prior posts, and it's been "bugging me". I know the brokers are hyping ETF's and ETF options. But given the fact that index options have favorable tax treatment of the profits and greater leverage and lower commissions , why would a trader take ETF option positions when a comparable index option is available ?
My first example would be RUT vs. IWM.
The only issue I can think of is liquidity and spreads.

I did not see this mentioned in prior posts, and it's been "bugging me". I know the brokers are hyping ETF's and ETF options. But given the fact that index options have favorable tax treatment of the profits and greater leverage and lower commissions , why would a trader take ETF option positions when a comparable index option is available ?
My first example would be RUT vs. IWM.
The only issue I can think of is liquidity and spreads.

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Syswiz;
1]Cant speak for others, but i never bought rental homes even though i could get better tax treatment than the acreage i occasionaly buy.Also land RE commissions frequently more

2] Couldnt find a quote on RUT;
did fnd IMM,RUD, but no options on RUD or RUT

3]And also QQQ [qqqq now ]was much more familiar[much data recorded in my home office to me ] than the index

4]Leverage isnt as important to me as some;
plenty in QQQ[now qqqq]otm if you want it.

5]Most of all perhaps QQQ[now qqqq] had much more volume[in option context anyway Laugh out loud] than the index

[7]Also option data has enough ''challenges''LOL;
and not only is QQQQQ has enough volume to print a bar [not a dot like some indexes do., visually speaking.

A funny thing happened once when i was in some swingtrading IWM options;
they split it [2 for 1 i think] & ripped my price but got twice as much.Accidently woke up with low priced options, no price change,except for split.

Did profit eventually on that but what a price shock;
thought it was bad data at first glance

http://delayedquotes.cboe.com/optio..._CLASS=IND&ID_OSI=9824287&ID_NOTATION=8941836
No volume ? Nearly 40,000 contracts traded near-the-money in call options alone on Friday !
One other thing to mention, index options like RUT.X, expire on opening price of the base index on expiration Friday. The ETF options expire at 4:00 pm I believe. This could be "hairy" of course, if morning futures have zoomed on expiration day and someone (that would be ME !) is short premium !

I did not see this mentioned in prior posts, and it's been "bugging me". I know the brokers are hyping ETF's and ETF options. But given the fact that index options have favorable tax treatment of the profits and greater leverage and lower commissions , why would a trader take ETF option positions when a comparable index option is available ?
My first example would be RUT vs. IWM.
The only issue I can think of is liquidity and spreads.

More...

Some traders treat broad-based ETF option trades as 1256 contracts and want to get the 60/40 tax treatment. It is up to you and your accountant to decide if this is a step worth taking. There is no clear regulation from the IRS on this matter.

Some traders treat broad-based ETF option trades as 1256 contracts and want to get the 60/40 tax treatment. It is up to you and your accountant to decide if this is a step worth taking. There is no clear regulation from the IRS on this matter.

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Wow, thanks...and that is very interesting. I guess the first poor option trader to be hit with an IRS audit will help set the precedent. A challenge could initiate a final ruling on the matter.
I wonder what position Green is taking on this ?

Well guys, maybe this was a test, maybe not....but I am very disappointed in the responses received so far.
I finally came to the conclusion that ETF options were made for hedging underlying ETF equity positions.NO, NADA, ZIPPO, ZERO advantage over counterpart INDEX options.
Bottomline: ETF options were made for the little guy who cannot afford to own all 2000 Russell stocks, but who bot IVM ETF shares.

I did not see this mentioned in prior posts, and it's been "bugging me". I know the brokers are hyping ETF's and ETF options. But given the fact that index options have favorable tax treatment of the profits and greater leverage and lower commissions , why would a trader take ETF option positions when a comparable index option is available ?
My first example would be RUT vs. IWM.
The only issue I can think of is liquidity and spreads.

More...

syswizard,

There are significant differences between ETF and index options, besides potentially different tax treatment. First of all, ETFs have smaller values thus making the options more affordable to the "small" trader. Second, ETF options are american-style, which can be an advantage or a disadvantage, depending on the situation/strategy, compared to the european-style. Thirdly, ETF options are physically-settled as oppose to cash-settlement in index options, which again may be an advantage in some strategies.

The bid/ask spreads are not really all that much of an issue, when you consider the relative size of an ETF compared to an index. For example, SPY is 1/10 the size of the SPX, so a spread of 0.05 in SPY options is equivalent to a spread of 0.5 in SPX options.

There's an advantage to this higher value as well. Higher value means that OTM options have bigger premiums, which makes them worthwhile selling given 0.05 and 0.1 minimum tick values, if that's what you wanna do (i.e. an SPY option trading at 0.1 is equivalent to an SPX option trading at 1.0). However, this advantage is being somewhat reduced by the introduction of penny pricing.

Thanks for the first intelligent response ! Whew, I forgot about the European vs. American expiration style....definitely an advantage for the index options. Who wants to be called early ? Cash vs. Physical settlement....no big deal if you are trading options and not holding till expiration.
Regarding the leverage issue: I can implement a strategy with 3 RUT contracts vs. 10 IVM contracts that have the same dollar payout or loss. Commission is thus 1/3 that of the IVM strat.

Thanks for the first intelligent response ! Whew, I forgot about the European vs. American expiration style....definitely an advantage for the index options. Who wants to be called early ? Cash vs. Physical settlement....no big deal if you are trading options and not holding till expiration.
Regarding the leverage issue: I can implement a strategy with 3 RUT contracts vs. 10 IVM contracts that have the same dollar payout or loss. Commission is thus 1/3 that of the IVM strat.

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Cash vs. physical is not a big deal if you do not hold to expiration, if do though it becomes a significant issue, not only because of the way the settlement value for index options is calculated, but also because of the resulting position or non-position when trading some strategies, namely horizontal (i.e. calendar) spreads.

Thanks, but you misunderstood me...the statement was two parts: one part indicating I can get the same dollar effect with 1/3 of the number of contracts. The second part was thrown in to show that commissions are 1/3 as well. Now I see why brokers LOVE ETF's and ETF options.